Anschutz Company and Subsidiaries - Page 40

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               In addition, the explicit language of section 1.263A-                  
          1(f)(4), Income Tax Regs., indicates that the reasonableness                
          standard should not be read into section 1.451-3(d)(6)(ii),                 
          Income Tax Regs.  The reasonableness standard of section 1.263A-            
          1(f)(4), Income Tax Regs., can apply only when section 263A is at           
          issue.  Section 1.263A-1(f)(4), Income Tax Regs., cannot apply              
          when only section 460 is at issue.  The first of three prongs to            
          the reasonableness standard states:  “The total costs actually              
          capitalized during the taxable year do not differ significantly”.           
          Sec. 1.263A-1(f)(4), Income Tax Regs. (emphasis added).  While              
          both sections 263A and 460 are at issue in the instant case, this           
          will not always be so.                                                      
               Section 1.451-3(c)(3), Income Tax Regs., requires that under           
          the percentage of completion method, costs incurred during the              
          taxable year with respect to a long-term contract must be                   
          deducted in that year.  Again, section 1.451-3(d)(6)(ii), Income            
          Tax Regs., requires that costs must be reasonably allocated among           
          the taxpayer’s long-term contracts and “other activities”.  In              
          situations where the “other activities” are not subject to the              
          capitalization requirements of section 263A, the reasonableness             
          standard of section 1.263A-1(f)(4), Income Tax Regs., cannot                
          apply because no costs would “actually [be] capitalized”.  Thus,            
          the reasonableness standard of section 1.263A-1(f)(4), Income Tax           







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